Mentor’s Comment

This article is important because it clearly explains China’s shift from an export- and investment-driven economy to one led by domestic consumption, innovation, and high-end manufacturing. At a time when China is often accused of “overcapacity” and “dumping,” the article presents a data-based counter-view, with clear implications for India-China trade, global manufacturing patterns, and the changing world economic order.

Why in the News

China’s economy crossed ¥140 trillion (~$20 trillion) GDP in 2025, registering 5% annual growth despite a weak global trade environment. Its contribution to global economic growth is projected at ~30%, underscoring systemic relevance. The article is notable because it rejects the Western “overcapacity” thesis, highlights domestic consumption as the primary growth engine (52%), and presents China-India trade touching a historic $155.6 billion. This marks a shift from earlier export-heavy narratives to a consumption-innovation-led framework, with explicit outreach to India for economic cooperation.

What Is Driving China’s Economic Growth Today?

1. Domestic Consumption: Contributed 52% of GDP growth in 2025, establishing consumption as the primary growth driver.
2. Price Competitiveness: Lower prices of goods and services reflect efficiency, not suppressed consumption.
3. Physical Consumption Indicators:
   1. Mobile phones: 1.28 per person, among the highest globally.
   2. Protein intake: 124.6 grams per day, higher than the US and Japan.
   3. Vegetable consumption: 109.8 kg annually, highest globally.

How Have Exports Sustained Growth Amid Global Uncertainty?

1. Export Contribution: Accounted for 32.7% of economic growth in 2025.
2. High-tech Manufacturing: Growth driven by servers, industrial robots, and advanced equipment.
3. Market Diversification: Stable export growth to ASEAN and the EU, offsetting volatility elsewhere.
4. Industrial Chain Depth: Ensures resilience despite an unfavourable global trade environment.

Why Is China Shifting Its Growth Model?

1. Capital Formation Slowdown: Contributed 15.3% to growth, signalling limits of investment-led expansion.
2. Growth Engine Transition: Shift towards domestic demand-led growth, with exports and innovation as supplementary drivers.
3. Technological Breakthroughs: Advances in AI, quantum technology, and brain-computer interfaces indicate qualitative upgrading.
4. Green Industries: Rapid growth in renewable electricity and clean energy manufacturing.

Is China Facing an Export ‘Overcapacity’ Problem?

1. Capacity Utilisation: Industrial utilisation at 74.4%, comparable to the US and EU.
2. Supply-Side Logic: Production capacity responds to global demand, not artificial surplus creation.
3. Competitiveness Factors:
   1. High R&D intensity
   2. Robust domestic competition
   3. Comprehensive industrial ecosystem
4. Rejection of Dumping Narrative: Competitiveness stems from productivity, not subsidies.

How Does China View Global Industrialisation and Demand?

1. Developing Country Demand: Infrastructure expansion and energy transition have increased demand for high-quality Chinese equipment.
2. Technology Transfer Role: Facilitates industrial upgrading in partner countries.
3. Global Manufacturing Integration: Positions China as both producer and technology supplier.

How Are India-China Trade Relations Evolving?

1. Trade Volume: India-China trade reached $155.6 billion in 2025, a historic high.
2. Import Composition: Indian imports largely consist of raw materials and components, supporting domestic production.
3. Export Growth: Indian exports to China reached $19.7 billion, growing 9.7% year-on-year.
4. Late-2025 Momentum: Monthly export growth reached 90% and 67% in the last two months of 2025.
5. Trade Intent: China denies pursuing deliberate trade surpluses and supports balanced trade.

What Policy Signals Does China Send to Global and Indian Businesses?

1. Tariff Regime: Maintains 7.3% average tariff, aligned with international standards.
2. Market Access: Negative list for foreign investment continues to shorten.
3. Visa Policy: Expanded visa-free access to encourage business mobility.
4. Domestic Demand Priority: Central Economic Work Conference identifies expanding domestic demand as top 2026 priority.
5. Market Scale: Population over 1.4 billion, including 400+ million middle-income consumers.

Conclusion

The article presents China’s economy as transitioning toward a consumption-driven, innovation-intensive, and green-oriented model, rejecting the overcapacity narrative. It highlights China’s centrality to global growth, sustained manufacturing competitiveness, and a pragmatic approach to India-China economic cooperation. The underlying logic is not export domination but systemic industrial strength and demand-led expansion.

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